Journal article
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More Australian home owners are using housing equity withdrawal to unlock financial resources to fund living expenses, especially in retirement. Policy is needed to address potential adverse consequences of these strategies.

Key points

  • The incidence of housing equity withdrawal (HEW) has increased from 13 per cent of older home owners in 2001 to 18 per cent in 2010.
  • The majority (84%) of HEW is through mortgage equity withdrawal (MEW), but downsizing or selling up are more prevalent for those above pension age.
  • Health concerns are a key driver of HEW, with downsizing and selling up commonly triggered by ill health.
  • Repayment risk (inability to meet mortgage loan repayments when interest rates climb unexpectedly) is negligible for most older people using MEW since their financial and employment situation is relatively stable. However, repayment risks are heightened for those experiencing marital breakdown and unemployment.
  • The risk of negative equity—when outstanding mortgage debt exceeds housing asset values—is negligible among MEW users but limited equity risk (defined as when the loan-to-value ratio rises to more than 60%) is more likely.
  • Impediments to downsizing include high transaction costs and means test rules for pensions. There is also a stigma in having to take up a reverse mortgage.
  • As governments may benefit from having home-owning retirees fund their health costs, they should consider ways to facilitate HEW through tax and other benefit settings. Providing good financial advice and improved financial literacy of home owners may reduce HEW risks, especially for those who use MEW. MEW products need to be regulated to limit the risks of negative or limited equity outcomes.
  • Governments should consider the social impacts of HEW. Downsizers need to find suitable smaller properties close to their community supports thereby reducing social isolation, while those who are forced to sell up and rent in the private rental market may need greater tenure security.



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